Report Finds Too Much Flexibility and Lack of Comparability in Net Price Calculators

A new report finds that net price calculators (NPCs) have the potential to help students and parents gather and compare college expenses and financial aid information, but suffer from limitations due in part to a lack of comparability from institution to institution.

The report, titled, "The Bottom Line: Ensuring That Students and Parents Understand the Net Price of College," was conducted by the Advisory Committee on Student Financial Assistance to advise the U.S. Department of Education on the implementation of NPCs in accordance with the Higher Education Opportunity Act (HEOA) of 2008, which requires each institution to provide an NPC on its website by fall 2011, using a Department of Education template as guidance.

Net price calculators are designed to help parents and students figure the dollar amount that must be paid after subtracting financial assistance from cost of attendance. Congress included the NPC requirement in the HEOA with the intention of providing students and parents with the data they need to make sound financial decisions. The new Advisory Committee report asserts that federal law offers too much freedom in the establishing of an NPC formula on an institutional basis.

"Although all institutions are required to include caveats and disclaimers as output elements, the flexibility that allows net price calculators to be customized and accurate could potentially make their comparison an extremely complex process for students and parents," the report states.

Despite the flexibility of the federal requirements, expert panelists advising the Advisory Committee found that "closer alignment of components, definitions, and output appears possible," though not through tighter regulations.

"A broad coalition of representatives from the higher education and policy making community should be formed to standardize and integrate these two financial aid tools to the extent possible," the report states.

Ideally, a net price calculator would generate the complete set of components found on a model award letter:

Cost of Attendance (COA)

Estimated Family Contribution (EFC)

Grant Aid

Out-of-Pocket Cost (Net Price after Grant Aid)

Self-Help Aid

Net Cost (Net Price after All Financial Aid)

Unmet Need

The law stipulates that institutions be required to include only half of those components, however some institutions include all components, while others include fewer, making the output difficult to compare between institutions.

The report also found some inaccurate calculations and a discrepancy in how institutions choose to display the out-of-pocket costs, which shows the amount of money the family can expect to spend, earn or borrow for the student to attend the institution. While some institutions produce one figure, others produced a range.

The Advisory Committee also addressed a second requirement in the HEOA of 2008 regarding improved standardization of financial aid award letters. Congress directed the Department to develop a model financial aid award letter as guidance. The major components of financial aid award letters are the same as those for NPCs.

"Although the purpose of award letters is the same at all colleges and universities, the content and style of financial aid award letters can vary dramatically from institution to institution," the report states. "These differences can create problems with comparability and often create confusion."

The Advisory Committee is scheduled to conduct a thorough evaluation of NPCs later this year, after the fall 2011 implementation deadline. The committee will also assess financial aid award letters at that time.